Koen Woes Reflect Long-term Trends

Like independent booksellers, the number of independent regional wholesalers that carry a full line of trade books has shrunk in recent years. If Koen Book Distributors, which filed for Chapter 11 bankruptcy protection in New Jersey District Court last week, is unable to stay afloat, the number of regional wholesalers remaining would be down to four: Bookazine, Partners/West Book Distributing, Distributors and Southern Book Service. As recently as five years ago, there were 15 wholesalers filling the needs of regional customers.

Low margins, high returns and a decline in the number of independent booksellers have put the squeeze on smaller wholesalers. Those factors combined to put BookPeople out of business last year and were behind the decision by BookSource CEO Sandy Jaffe to move his company out of the trade distribution business to focus on educational wholesaling and binding.

The decline in independent booksellers has been perhaps the most critical blow to regional wholesalers. Not only are indies important customers for the regional suppliers, but wholesalers have been among the largest creditors of bookstores that have gone out of business. (A Google search for Koen and bankruptcy turns up such names as WordsWorth, Bibelot and Lauriat's, all of which went out of business owing Koen money.) The drive by publishers to fulfill more orders themselves also has cut into wholesalers' margins.

Although Koen Book president Bob Koen still hopes he can weather the storm, it may take more than a positive attitude for the company to maneuver out of its current difficulties. According to court papers, Koen owes publishers close to $14 million, on top of what is owed to PNC Bank, which forced the company to restructure its line of credit.

In a letter that went out to customers last week, Koen wrote: "It is our intention to continue, without interruption, the shipment of books." However, a buying freeze that began last month has forced inventory levels, which normally hover between 75,000 and 80,000 titles, to dip below 40,000. Even if customers continue to support Koen by keeping the company in their cascade, it will be difficult for the wholesaler to fill their orders. Koen's staff has also been cut in recent weeks, down to 60 from more than 100 employees at the first of the year.

Koen has told customers that the restructured company will be leaner and meaner. With no new line of credit, it will have to be, as it moves from a full-service wholesaler to one that is smaller and relies more heavily on just-in-time inventory.